-Millan Mulraine, deputy chief economist at TD Securities
Sales of previously owned homes in the US declined sharply in January to the lowest level since April last year, reflecting a shortage of properties on the housing market and rising prices that could potentially constrain the market this year. Existing home sales dropped 4.9% in January from the preceding month to a seasonally adjusted annual rate of 4.82 million, according to the National Association of Realtors. The fall in sales, which appeared to be broad-based, came despite the 30-year mortgage rate sliding to the lowest level in 20 months. Tight supplies are undermining sales by limiting the choice of houses available to potential buyers, and keeping house prices elevated, putting off first-time buyers from the market. With supply falling, the median price for a previously owned home soared 6.2% in January from last year. Last month, the share of first-time buyers declined to 28%, the lowest level since last June, down from 29% in December, marking the second consecutive month of decline.
However, a tightening labour market would boost strong wage growth and attract first-time buyers to the market. Yet, unless there is a significant increase in the number of homes available for sale, the housing recovery could remain dull. The housing market has so far lagged the overall economic recovery. Home sales rose 3.2% from the previous year.
© Dukascopy Bank SA